The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Given the potential implications for financial services, it is important that the industry engages closely with the consultation and considers how the proposals interact with financial inclusion, AML and customer onboarding requirements, for example. This blog seeks to summarise key points most relevant to financial services and outlines areas where further clarity may be helpful.

Document or system?

The consultation says that government intends to issue a new “Digital ID” credential containing basic identity information such as name, date of birth and photo. This digital document will be particularly useful for people who do not have a passport or driver's license, which are currently the most commonly used documents used for digital KYC.

The consultation indicates that the Digital ID credential would be optional, meaning that it will still be necessary to support existing documents and future digital versions of them, such as mobile driver’s licenses.

The consultation also repeatedly refers to a “Digital ID System” without clearly describing what this this would involve end-to-end. Reference is made to “existing” systems including GOV.UK One Login and the GOV.UK Wallet but these do not amount to an end-to-end identity system. 

We consider that the private sector, including financial services, will continue to play an important role in enabling the distribution and acceptance of the “Digital ID” credential and other credentials across the economy. It is therefore welcome that the consultation recognises the potential for credentials to be issued into third-party wallets.

The role of government

Two earlier consultations on digital identity, in 2019 and 2023, considered the role that government should play in digital identity. They rightly concluded that there are roles that only government can fulfil:

• Being a provider of authoritative identity data
• Regulating the use of digital identity, where appropriate, including for AML purposes
• Being a significant user of digital identity for public sector services

The consultation and recent high-level guidance from HMT align with the first two of these items.
In addition, the government should work with industry to support an open, standards-based and internationally aligned digital identity market. The DVS Trust Framework which sets out the rules for certified digital identity services in the UK, is currently technology agnostic. While this supports flexibility, it may also create a risk of fragmentation if different proprietary solutions develop without aligning to emerging international standards.

How should financial services respond?

Overall, the proposals represent a potentially positive step towards wider use of trusted digital credentials, and the FS sector may wish to engage constructively with the consultation. In particular, industry may want to consider supporting the following:

• Support the development of Digital ID credentials to enable inclusive access to financial services.
• Support the issuance of other anchor documents, including driver’s licence, as verifiable credentials, to provide choice to consumers.
• Promote the issuance verifiable credentials into secure private sector wallets – to provide choice, encourage competition and ensure scale.
• Encourage alignment with converging international standards to support interoperability.
• Encourage coordination between digital identity policy and digital payment infrastructure, recognising that many economic transactions often require both.

The consultation also makes reference to digital signatures. This is an area where further policy development could support much wider adoption of digital processes across financial services and the wider economy.